Xero (CloudAve review here) has just announced a new product line – Xero accountants edition. In essence XAE is a product that allows an accountants office to manage all of their clients from one place. It also allows accountants to on-sell, or package as part of their service, the full Xero product or just a cut down cash book.

Xero’s strategy is very much one of partnering with the accountants and leveraging that relationship to on-board new customers. I’ve been a vocal sceptic of their strategy thus far – I felt it was destined to mediocre results at best, relying as it did on partners that, to a certain extent were being disintermediated by the very product Xero is trying to sell. I have to say my perspective has changed with this announcement, But first some background.

So what is XAE? In Xero’s own words;

Xero Accountants Edition isn’t just one product, it will be a whole family of tools to help accountants. Our first product is a cashbook version of Xero designed for accountants to bundle with other services. We find a good number of these end up upgrading to a full version of Xero as the small business starts seeing regular reporting. Over the next few months we’ll have a whole new interface just for accountants to manage their clients and their relationship with staff.

Xero justifies XAE to the profession by pointing out the following benefits;

Your staff can use the same tool for managing all your cashbook and standard clients

Xero allows you to easily run your practice from home

Manage many more customers and work with them more cost effectively

When clients have access to real time financials, their requests for value added services increase

Effectively service clients from any region

Was this planned?

I don’t believe this specific move was planned from the outset. Close followers of Xero will notice that the projected customer per month charge in the share offer document was NZD75 per user per month. Subscription price has had to fall to meet market demands and to meet the customer numbers projected in the prospectus.

I believe that this is in part a result of the mistaken assumption that simply providing accountants a choice would translate into sales. This hasn’t quite been borne out and Xero has had to modify strategies as a result.

XAE is in my opinion a very smart, but somewhat opportunistic tactical move by Xero to ramp up channel sales.

Why it’s a great move anyway

If you’re going to partner with professionals, you need to give them a good incentive. Merely moving a desktop product to SoSaaS isn’t enough. Sure it allows them more of a hands on role with their clients – but this doesn’t neccessarily convert to higher billable hours – the important requirement for any professional. XAE will start to provide increased revenue streams for the accountants.

First up to be released is a cashbook product that accountants can on-sell to clients. This cashbook allows the client to do the data entry "at the coal face" while the accountant does the heavy lifting from their XAE dashboard. Xero also allows a degree of customisation of the cashbook, with the accounting firm details able to be displayed on the client facing windows, and with support questions able to be routed directly to the accountant rather than to Xero. These features all add up to what accountants will regard as a value added offering.

A cheap vertical

Xero already created a robust accounting engine – the XAE components are essentially pared down parts of the full Xero offering with some readily built client management functionality. As such Xero has been able to create a compelling verticalised offering with no huge investment in development – it’s a marketing and use-case development rather than a heavy weight technical one.

Where to from here?

I’ve always been a proponent of providing migration services to third parties in order to create evangelists. I’d expect to see Xero offer their accounting partners some automated migration tools that they can use for their clients – this will provide a double win by both giving accountants a value-add tool they can charge for and also by easing the on-ramp for new customers.

I’d also not be surprised to see some sort of partnership with a business analysis partner – this would again provide a value-add tool that accountants could use with their clients. Currently most business analysis is too cumbersome and expensive for small businesses – an accountant driven, SaaS delivered set-up could turn this on its head.

Summary

As I mentioned before – this is primarily a sales channel strategy – it takes mostly existing, and a small amount of new functionality but bundles it up into an attractive and compelling package – this could prove a game changing move by Xero. It’s a move that should be closely watched and vendors in other functional areas should look to their own offerings and think about how they could be repackaged to create new product evangelists.

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Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. His business interests include a diverse range of industries from manufacturing to property to technology. As a technology commentator he has a broad presence both in the traditional media and extensively online. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

2 responses to “A Vertical That’s Starting To Make Sense”

“Xero’s strategy is to empower the accounting community with a product that enhances their business”.

Why would you build an accounting system without addressing the requirements of the accountant?

In the case of Xero, we’re not moving traditional accounting to the Internet, we’re building a platform that connects the whole ecosystem and every stakeholder. This includes accountants, bookkeepers, banks, carriers, tax authorities, suppliers, customers, employees, directors and other solution providers etc.

Now we have the core engine largely in place, over the next few months you’ll see more specialist offerings emerge.

This ability to leverage the core platform into related product families is one of the obvious benefits of SaaS.

[..] Given Sage’s massive presence within accountants, it is good to hear that SageLive will effortlessly integrate with the existing tools that accountant practitioners use. This is a real issue for SaaS accounting products – some vendors hope for the best, some forgepartnershipswith practice management software vendors while the big players with existing practice products can (and should) ensure their products work with the existing tools. [..]